Pfizer Fights Backlash From U.K, U.S. on AstraZeneca Bid

Senator Carl Levin, a Democrat from Michigan, said he is writing legislation to block U.S. companies from shifting their legal addresses overseas to avoid U.S. taxes, a move Pfizer has proposed as part of the transaction. Photographer: Drew Angerer/Bloomberg

May 9 (Bloomberg) -- Pfizer Inc.’s record of job cuts after
acquisitions is now drawing heat from both sides of the
Atlantic. U.S. and state politicians have joined their U.K.
counterparts in questioning the economic impact of the
drugmaker’s push to buy AstraZeneca Plc.

U.S. Senators Carl Levin and Ron Wyden are proposing
legislation that would make it harder for U.S. companies to
shift their legal addresses overseas to avoid U.S. taxes, a move
Pfizer has proposed as part of the transaction. Maryland
Governor Martin O’Malley and Delaware Governor Jack Markell said
yesterday they were concerned the deal will lead to job losses
in their states in a letter to Pfizer Chief Executive Officer
Ian Read.

The U.S. backlash follows Read’s commitment to U.K.
officials that Pfizer would keep at least 20 percent of the
combined company’s research-and-development workers and
substantial manufacturing plants in the U.K. for at least five
years. The governors wrote that they want assurances as well.

“Despite our requests, we have received no corresponding
assurances about retaining jobs and research and development in
our states,” O’Malley and Markell, both Democrats, wrote in a
letter obtained by Bloomberg News. “Our concern is exacerbated
by Pfizer’s history of closing U.S. research facilities,
including sites in Michigan and Illinois, after closing on
previous corporate transactions.”

While London-based AstraZeneca rejected Pfizer’s $106
billion offer last week, the New York-based drugmaker has told
U.K. officials it isn’t ready to walk away from the deal. Read
is set to speak about his proposal to buy AstraZeneca at two
separate U.K. parliamentary committees next week.

U.S. Inquiries

Read may soon face government inquiries in the U.S. as
well. Pfizer has said it plans to keep the company’s operating
headquarters in the U.S., even as its legal address shifts to
the U.K. for the lower tax rate. In doing so, Pfizer would join
at least 18 other companies that have said they are making or
contemplating similar transactions since 2012, including
Chiquita Brands International Inc.

Democrats in the U.S. Senate yesterday said they may push
to block companies from moving their legal addresses overseas to
reduce their tax bills. Levin, a Democrat from Michigan,
yesterday said he was writing legislation that would stop such a
company action. He was joined by Wyden, the Senate’s finance
chairman, in questioning the ability of companies to redomicile
abroad in order to avoid U.S. taxes.

Wyden, an Oregon Democrat, told reporters in Washington he
is considering quick action to prevent companies from
“hollowing out” the U.S. tax base before lawmakers have the
chance to consider broader tax changes.

‘Quick Steps’

Wyden said in an opinion article published in the Wall
Street Journal late yesterday that he wants to increase current
requirements that U.S. companies reincorporating overseas have
at least 20 percent of stock owned by their foreign partner.

“I am committed to raising this floor to at least 50
percent” starting immediately, Wyden wrote, adding that
“corporations must understand that they won’t profit from
abandoning the U.S.”

If Wyden’s proposal were enacted and made retroactive to
May 8, as he suggests, it would scuttle the tax benefits of the
Pfizer transaction in its current form. Pfizer’s bid for
AstraZeneca, which is smaller by market value, envisions current
Pfizer shareholders holding more than 50 percent of the combined
company.

Under Wyden’s proposal, which echoes one from the Obama
administration in March, such transactions would be disregarded
for tax purposes, and the combined companies would be taxed as
U.S. firms.

Bad Press

“If the Pfizer/AstraZeneca deal happens, it’s likely to
close before Congress acts on inversion,” said Mark
Schoenebaum, an analyst at ISI Group LLC, in an e-mailed
response to questions. “Thus, I don’t think Pfizer will be
legally prevented from completing the deal. I would imagine that
Pfizer anticipated much of the bad press and decided to move
forward anyway.”

Democratic efforts in the Senate will likely face
opposition from Republicans in the House. Representative Dave
Camp, a Michigan Republican who is chairman of the House Ways
and Means Committee, said any attempt to address tax inversions
like the one Pfizer plans should only be done in a broader
revamp of the tax code.

Earlier this year, Camp released proposed legislation that
would cut the U.S. corporate tax rate to 25 percent from 35
percent and trim taxes on foreign income.

Preferred Approach

“I don’t think this is something you can kind of one-off,” Camp told reporters in the Capitol. “So I actually
prefer an approach that really is actually going to create jobs
and grow the economy as well.”

Pfizer supports tax legislation that “enhances the global
competitiveness of U.S.-based companies operating
internationally,” Mackay Jimeson, a company spokesman said in
an e-mailed response to questions. “We expect the comprehensive
tax reform debate to continue, and we are actively engaged in
the debate.”

On April 28, Read said he didn’t believe an acquisition
enabling Pfizer to move its legal resident to the U.K. would
“create a conflict with the interest of the U.S. government.”

Pfizer shares fell less than 1 percent to $29.03 at the
close in New York.

Job Concerns

While the tax issue spurred concerns in Washington, job
cuts were on the mind of the Maryland and Delaware governors.
O’Malley and Markell told Read they want Pfizer to make some
commitments to their states. Read has reportedly told British
Prime Minister David Cameron that he would retain U.K. jobs.

Pfizer has a track record of eliminating jobs and
shuttering research labs following acquisitions. Since 2003, the
drugmaker has announced plans to close at least seven research
centers and shed about 70,000 employees.

AstraZeneca employs 5,700 people in Maryland and Delaware,
Markell, the Delaware governor, said in a telephone interview.
The company’s North America headquarters is located in
Wilmington, Delaware; there is a research center in
Gaithersburg, Maryland; and a manufacturing facility in Newark,
Delaware.

O’Malley and Markell decided to send their letter and make
it public after reading about assurances Read reportedly
provided to the British government, Markell said in a telephone
interview yesterday.

Future Commitments

They asked Pfizer to tell them details on how many jobs may
be cut or relocated from their states as a result of a deal,
what future investment they might get in the states and the
drugmaker’s possible plans for splitting a merged company into
different businesses.

“We have 2,600 very good people in Delaware and 3,100 in
Maryland,” Markell said by telephone. “My job is to do
everything I can do to make sure they have continued career
opportunities.”

The governors didn’t discuss the letter or operations with
officials at AstraZeneca, Markell said. They asked Pfizer to
respond promptly to their request, and Markell said he received
a polite phone call from a senior leader at the company who said
he would keep the governor informed of Pfizer’s progress with
the acquisition.

“We believe a potential combination with AstraZeneca would
build a stronger company by bringing together our assets, people
and scientific expertise to create vibrant businesses with new
potential growth and opportunities to meet patients’ needs,”
Pfizer’s Jimeson said in an e-mail. He said Pfizer officials
have spoken to the governors and understand their concerns.

“Keeping us informed is very different from the kind of
jobs they have committed to in the U.K.,” Markell said.

U.K. Concerns

Meanwhile, in the U.K., concerns about the deal continued
to surface. The Wellcome Trust, a U.K. endowment with 16.5
billion pounds that funds medical research, said in a May 2
letter to the U.K. government that it was worried about Pfizer
reducing research in that country.

“If AstraZeneca does merge with Pfizer or with any other
company, we think it is essential that the R&D and manufacturing
capabilities it offers to the U.K. is maintained, and,
critically, that its investment in its major R&D facility in
Cambridge is not lost,” William Castell, chairman of the trust,
and Jeremy Farrar, its president, wrote.